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Tue, 06 Dec 2016 23:22:32 +0000en-UShourly1http://wordpress.org/?v=4.3.6Real Estate Mistakeshttps://barefootinvestor.com/realestate-mistakes/
https://barefootinvestor.com/realestate-mistakes/#commentsFri, 18 Nov 2016 20:07:29 +0000https://barefootinvestor.com/?p=21022A couple of years ago I hosted a 13-week prime time television show. Don’t remember it? There’s a reason for that … it was axed after the second episode. I found out about its premature death via a text message (!) from the network. It started out promising — “We...

]]>A couple of years ago I hosted a 13-week prime time television show.

Don’t remember it?

There’s a reason for that … it was axed after the second episode.

I found out about its premature death via a text message (!) from the network. It started out promising — “We LOVE the show” — but went quickly downhill — “And we’ll play out the rest of the series on one of the digital channels … sometime.”

Television is a brutal game.

Then again, so is the property market, which is what the show was about.

If we’d made it to the later episodes, you would have seen a young couple making a life-changing mistake.

Spurred on by her father, the couple were half-heartedly bidding at an auction on an absolute dump of a joint. You could tell they didn’t want it, and you could also tell that they really couldn’t afford it.

And then the unthinkable happened … the bloke they were bidding against suddenly put his hands in his pockets and shook his head, and the auctioneer turned around and shouted “SOLD!” to the shellshocked couple.

Real Estate Mistakes

So let’s talk about the two biggest mistakes that first home buyers make.

The first mistake they make is they buy a home they can’t afford. They’re often spurred on by the ‘advice’ of family, friends, real estate agents and bank managers — none of whom have the responsibility of repaying the debt for the next 30 years.

That explains why I’m a stickler for saving up a 20 per cent deposit. Yes, a good deposit means that you don’t have to pay Lenders Mortgage Insurance (LMI), which can cost homeowners upwards of $13,000 simply to insure their bank. And yes, it also means you’ll be able to negotiate a cheaper rate with the bank. But the main payoff from saving a 20 per cent deposit is that you will have proven to yourself that you can handle a huge mortgage.

How long does it take to save up a 20 per cent deposit? Well, the average full-time pre-tax wage in Australia is $78,832 or $5,000 a month in the hand (excluding super). So a couple both earning average wages could live off one income (very frugally) and save a $100,000 deposit in 21 months.

The second mistake first home buyers make is … buying the wrong home.

It happens every weekend. Property prices in our capital cities are so insanely high that many young couples get worn down by being continually outbid on places. Some get so desperate they wind up behaving like a boozed-up bloke at a nightclub when last drinks are called … “You’re here; you’ll do”.

I get emails from people most weeks saying things like, “We know it’s tiny, a little dumpy, and totally not in the area we want to end up … but it’s only temporary.”

Haemorrhoids are temporary … a $650,000 home is anything but.

Trust me on this. The biggest purchase of your life shouldn’t be a chew-your-arm-off-in-the-morning moment. You should only buy a home that you can happily live in for at least 10 years.

Reason being, the costs of buying and selling (hello stamp duty and agent’s fees) mean that you will likely be out of pocket if you plan on selling within a few years. Also, the idea of turning your home into an investment property and upgrading is generally a bad idea from a tax (and investment) point of view.

The bottom line is that if you can’t commit to a 10-year timeframe then you’d be better off renting.

Yet that doesn’t mean you should hold off buying until you can afford to live in a trophy suburb. Far from it. When my wife and I went looking for our place in the country, we decided to rent there for a year. “You should rent in the country for a while… make sure she doesn’t miss her soy lattes”, my father wisely advised. It was good advice, given my wife, Liz, was brought up in North Fitzroy where even the ducks have their own bike lanes.

In that year of renting we got a feel for the joint. Not only did we become part of the community, we also got to study the market. I made friends with local real estate agents and even did a letterbox drop of places I wanted to buy.

In the end, the day we bought our home was one of the best days of my life. Not only could we afford it, but we knew it was the home we’d never leave (well, until it burnt to the ground). I actually sealed the deal by proposing to Liz on the verandah.

Okay, so you may not go that far, but I guarantee you that every first home buyer feels a sense of freedom from finally being able to delete the Real Estate app from their phone. Not only did Liz and I get our weekends back, but we now had a place to call home.

As my mum says, “Life doesn’t always turn out like it does on TV”. And thank God for that.

]]>https://barefootinvestor.com/realestate-mistakes/feed/0How Much Does it Cost to Have a Baby?https://barefootinvestor.com/how-much-does-it-cost-to-have-a-baby/
https://barefootinvestor.com/how-much-does-it-cost-to-have-a-baby/#commentsSun, 13 Nov 2016 23:24:51 +0000https://barefootinvestor.com/?p=21003About four years ago, my wife entered our living room waving a pregnancy stick above her head like she was Mitchell Johnson triumphantly screaming HOWZAT! at the umpire. “We’re pregnant!” she cheered. I was like a defiant Indian batsman disputing the inside edge. “Give me a look.” We both stared...

]]>About four years ago, my wife entered our living room waving a pregnancy stick above her head like she was Mitchell Johnson triumphantly screaming HOWZAT! at the umpire. “We’re pregnant!” she cheered.

I was like a defiant Indian batsman disputing the inside edge. “Give me a look.”

We both stared at the plastic stick under the fluoro light in the kitchen. There wasn’t a second blue line.

“Not out”, I boldly declared.

We ended up taking it to the third umpire — our local GP — who confirmed one of the great learning lessons of my life: my wife was right (she was pregnant). She’s always right. Even when she’s wrong, she’s right.

And if my life was a telemovie, the next scene would be a fast-moving montage (with Johnny Farnham’s ‘Playing to Win’ as the soundtrack), as we get married at our farm, have the baby (I almost pass out), the house burns down (I almost pass out), and we have another baby (thankfully, I’m now strong enough to cut the cord), and then the music fades down and we return to the present moment where I’m typing this to you … as my three-year-old clean-bowls my one-year-old, and my wife yells at me like it’s my fault.

If you’re planning to start a family — or even if you’re not — the news that you are expecting a baby can knock you for six. Here’s how to have a good opening partnership.

It costs $10,000 to have a baby? Howzat!?

In the year leading up to the pregnancy you should save up — at the very least — $10,000.

The average cost of having a baby in a private hospital is $8,500 per birth according to Medibank Private, and that doesn’t include obstetricians, nappies or ‘push presents’ that fathers are apparently supposed to buy to motivate their pregnant partners (like a bowling ball pressing down on them isn’t motivation enough).

Do you really need that much if you’re planning on delivering in a public hospital?

Yes, you do.

Sure, giving birth as a public patient in a public hospital is free — but it’s what happens during the pregnancy that can really cost you. Think of all the visits to the doctor, the blood tests … and then there’s the ‘little emperor syndrome’. You see, most first-time parents go a little ga-ga when they are expecting.

I’m a classic case study of stupidity.

In the months leading up to my first son being born, I put more research into choosing a pram than I did into buying my first car (and I spent roughly the same amount). And when that state-of-the-art ‘all-terrain’ stroller was destroyed in our house fire … I replaced it with a cheap and nasty $25 job from Kmart.

Think of having a baby as like starting a business. There are significant upfront costs that can be amortised over subsequent product releases, but these upfront costs are really going to hit you.

What you can do — like any good business owner — is to lower your costs by buying strollers, cribs and the like from Gumtree or eBay. Remember, it’s not child abuse for kids to wear hand-me-downs or, later, to share a room.

Still, that doesn’t alter the fact that you need a big chunk of change on hand for your first baby. You’re about to enter one of the most expensive periods of your life … and you’ll be doing it on one wage — with sleep deprivation and cracked nipples. So for your sanity make sure you have at least $10,000 saved up.

Should We Go Private or Public?

We’ve done both, and I’d take public any day of the week. (That said — I’m basing my opinion on the comfort of the chair I dozed off in, the cost of parking, and the fact that it was … free). So I asked my wife and she agreed with me. We’ve got one of the greatest public health systems in the world, and you’re already paying for it.

How Do I Know What I’m Entitled to?

New parents receive 18 weeks of paid parental leave, which works out to be $657 a week before tax, on top of whatever scheme their employer offers (and around half of all employers have some form of paid maternity leave). Once your baby is born, you could be eligible for some Centrelink benefits, including the Family Tax Benefit, parenting payment, rent assistance or a health care card.

To work out what you are entitled to go to Centrelink’s online ‘payment finder’. Then go to Moneysmart’s ‘parental leave calculator’ which will help you get a bird’s eye view of your finances over the next 12 months. My recommendation is that any parenting payments you receive should be in addition to the $10,000 you’ve saved up.

Should We Buy a House?

I get this question a lot from expecting first-time parents who currently rent. Some write to me in a state of panic at the thought of bringing their kid home to a rented home. But unless you have a 20 per cent deposit — in addition to your $10,000 baby bounty — I’d hold off buying a home for at least a few years. Life is going to be very stressful without adding a move and a mortgage to the mix.

How Do I Ensure My Kid Gets a Good Start in Life?

By looking after yourself.

The first 12 months of being a parent are stressful. You have no idea what you’re doing. There’s very little sleep (at least in the beginning). You basically surrender yourself and serve the baby. And so the best gift you can give yourself in that first year is not having to fight or worry about money. And we’re planning on long innings with plenty of bouncers being thrown your way. Howzat?

]]>https://barefootinvestor.com/how-much-does-it-cost-to-have-a-baby/feed/0What Donald Trump means for your moneyhttps://barefootinvestor.com/what-donald-trump-means-for-your-money/
https://barefootinvestor.com/what-donald-trump-means-for-your-money/#commentsMon, 07 Nov 2016 05:08:25 +0000https://barefootinvestor.com/?p=20971My wife is a television producer so you’d expect her to have a refined viewing pallette. Not so. She watches The Bachelorette, the Real Housewives of Bendigo, and any program where everyday Aussies commentate on their own cooking: “I just knew I’d be going home when my caramel soufflé refused...

]]>My wife is a television producer so you’d expect her to have a refined viewing pallette. Not so. She watches The Bachelorette, the Real Housewives of Bendigo, and any program where everyday Aussies commentate on their own cooking: “I just knew I’d be going home when my caramel soufflé refused to rise …”

Seriously, her taste in TV is the equivalent of me dumping my AFIC shares and day-trading biotech stocks. Still, while I prefer CNBC and Bloomberg, there’s one show we’re both addicted to: House of Cards.

For those of you too old to work out Netflix, it’s a political thriller that follows the ruthless rise to the US Presidency of Frank Underwood, played by Kevin Spacey.

It’s wall-to-wall sex, drugs, murder and corruption. And apparently the scriptwriters have got it spot on.

Bill Clinton — the future First (Ladies) Man — reportedly told Spacey, “Kevin, 99 per cent of what you do on that show is real. The 1 per cent you get wrong is that you could never get an education bill passed that fast.”

Of course House of Cards has nothing on the real US election: penis jokes, pussy grabbing, private emails. People say they like that Trump says what he thinks. Yet so does my three-year-old, but that doesn’t mean I want to give him the code to the nuclear bomb.

And with our share market falling eight out of the last ten sessions, I’ve had a lot of questions about what will happen to the share market if Donald comes up Trumps.

So here are my thoughts.

What Would a Trump Presidency Do to the Share Market?

One leading Australian fund manager predicts that the Dow Jones will fall 1,000 points, or a 6 per cent drop, if Trump is elected next week. Another celebrated economist has forecast it will be 2,000 points, or a 12 per cent drop, if the comb-over king gets in.

Scary stuff.

Yet the fact that their predictions vary by 100 per cent tells you they may have plucked these figures out of their … Trumps.

Speaking of which, I’ve also tried to consult my favourite stock market sage — my golden retriever, Buffett. However, he was unavailable to comment on the outcome of the US election — and its effect on global markets — because he was sniffing another dog’s butt.

And before you think I’m being flippant, my mutt has form. A few years ago I put his prediction for the share market up against predictions by some of Australia’s leading economists, and he lifted his leg on the lot of them, winning by a surprisingly large margin.

All of which goes to show that I don’t have a lot of faith in predictions.

For all the scary stock market predictions, the truth is that Trump could actually be good for the US share market. After all, he’s pro-business (he’s just not a pro at business), and he plans to drop the tax rate for US corporations from 35 per cent to 15 per cent.

None of this has been costed, of course, and some economists are suggesting it could add $5.3 trillion to America’s national debt. Though if there’s anyone who knows how to go bankrupt, it’s The Donald.

These Are the Crazy Days

The Economist magazine has suggested that a Trump presidency is one of the major risks facing the world. Yet let’s take a chill pill and put it in perspective.

No candidate has ever won after being so far back in the polls, so it’s unlikely he’ll make it to the oval office at all.

But even if he does win, he still has to get his cra-cra plans — like whacking Chinese imports with a 45 per cent tariff — past Congress. And even if he does get a (watered-down, cobbled-together plan) past Congress, we then have to guess what effect that will have on China and, more importantly, how they’ll respond. Then we’ll have to guess what the fallout will be for Australia.
That’s a lot of guessing.

So let’s not guess. Instead, let’s look at some of the crazy stuff that has actually happened. Over the past 120 years or so we’ve had:

The First and Second World Wars

The Great Depression

The Vietnam War

The Gulf Wars

9/11

The GFC

Grexit and Brexit.

And over that same time if you’d invested a single dollar — $1 — in the Aussie share market, it would be worth a staggering $194,439 today. Also over that time we’ve had some shocking politicians … though I’ll leave it up to you to fill in the blanks on who they are.

The takeout from all of this is simple. If the markets plummet on Thursday, be a buyer not a seller.

My investment decisions have nothing to do with politics, because history has proven that the effects of politics are impossible to predict. (President Obama is seen as a socialist in some camps, yet over his time as president the US share market has risen by an average annualised rate of 14.5 per cent. George W Bush, on the other hand, is a rabid Republican yet the share market dropped by an average 3.5 per cent per year over his two terms).

The key is not to get caught up in the soap opera. Remember, politics is show business for ugly people. It’s much more important what happens in your house than in the White House.

]]>https://barefootinvestor.com/what-donald-trump-means-for-your-money/feed/0The Power of a Simple Planhttps://barefootinvestor.com/the-power-of-a-simple-plan/
https://barefootinvestor.com/the-power-of-a-simple-plan/#commentsMon, 31 Oct 2016 04:53:33 +0000https://barefootinvestor.com/?p=20954A couple of years ago my wife dragged me along to the opening of an art exhibition. Dutifully, I stood there with a glass of bubbly in one hand and a quizzical look in the other. I felt as out of place as a sober dude on a dancefloor. Worse,...

]]>A couple of years ago my wife dragged me along to the opening of an art exhibition.

Dutifully, I stood there with a glass of bubbly in one hand and a quizzical look in the other. I felt as out of place as a sober dude on a dancefloor.

Worse, out of the corner of my eye I noticed a woman — and what I assumed was her teenage son — gawking at me.

I caught the kid’s eye and he approached me.

“You’re the Barefoot Investor, right?”

“Yes”, I replied.

He looked back over to his mother and nodded.

“Would you mind if my mum came over and spoke to you? She doesn’t want to bother you, but …”

“Sure, I’m happy to help”, I smiled.

This happens to me quite a bit. I’m like Kim Kardashian, only people don’t want to take a selfie with me — they just want advice on what to do with their Self Managed Super Fund.

She was a well-dressed woman in her 40s. She approached me nervously with a smile on her face, but as she got closer I saw tears in her eyes.

Then she said …

“Two years ago I lost my husband. I was left with young kids. I didn’t know what to do. I was alone and I was really scared. I wrote to you one night, thinking you must get thousands of letters, and not expecting a reply.

But you did reply. And you gave me the advice I needed. You don’t know how much I needed to hear it at that point in my life. You can’t imagine how much you helped me”, she said with tears running down her cheeks.

So what amazing advice did I give her that produced such an emotional reaction?

Nothing.

That’s right. I (basically) told her to do nothing.

She’d just received a very large life insurance payout and was overwhelmed with what to do. That’s totally normal behaviour by the way. It’s called the ‘paradox of choice’ — an unlimited number of choices makes the decision process harder, not easier.

And her grief only compounded her indecision.

The advice I gave her simply allowed her to release the pressure value.

I told her to pay off her mortgage (she was adamant that she wanted to stay in the family home), take her kids on a holiday, keep enough money on hand so she didn’t have to worry or work full time for the next year, and then lock the rest of the money up in a 12-month term deposit. That way she could spend the next 12 months grieving and caring for her kids.

In other words, keep it simple. And that’s good advice for you too. Let me explain.

We Don’t Know When We’re Getting Bad Advice

A major study conducted earlier in the year by the University of Sydney found that most Australians are unable to tell the difference between good and bad financial advice.

The researchers produced videos of a number of advisors — some providing good advice and others providing bad financial advice. The videos were then shown to groups of people who were asked to identify which of the advisors they would trust.

The research found that trust in the advisors was easily manipulated. “We were able to show that if an advisor gave good advice on an easy topic (like paying off a credit card) that this formed a good impression in the mind of the client, so they continued to trust that advisor even when they gave them bad advice down the track”, said Professor Susan Thorp who led the study.

We saw this in action this week.

The latest financial planning scandal reported by ASIC — and there’s been a long line of them — revealed that almost 200,000 clients have collectively paid for $178 million worth of ‘advice’ that they never actually received. In other words, those 200,000 people were so bamboozled with bulldust that they didn’t even know what they were being charged for.

Keep it Simple

So if the average person can’t tell whether they’re receiving bad advice, what’s the solution?

You should do what the widow did.

When you are presented with advice you do a gut check.

The simple plan of eliminating her debts and focussing on her family gave her an enormous sense of relief, a feeling of control over her life and best of all — it was one she could understand.

Here’s the rub: when you’re making a bad financial decision you almost never feel any of this.

If you don’t understand something — or you are a bit hazy on the detail — you should keep asking questions until the fog clears. Over the years I learned that whenever someone tries to makes things appear complicated it generally means they’re trying to sell you something.

I’ve helped thousands of people with their money over the past fifteen years, and the one overriding lesson is the power in keeping things simple.
You’ll never go wrong if you follow this advice:

First, saving is the bedrock of all true wealth and security.

Second, debt always adds risk. It always makes your life more complicated. If you can avoid it you should.

Third, the only thing you can control with your investments is the fees you pay. A wealth of research proves that the more your wealth manager takes the less you make.

And the final clincher is this: no one cares more about your money and your family than you do.

]]>https://barefootinvestor.com/the-power-of-a-simple-plan/feed/0Would you invest in … whisky?https://barefootinvestor.com/would-you-invest-in-whisky/
https://barefootinvestor.com/would-you-invest-in-whisky/#commentsSun, 23 Oct 2016 23:57:30 +0000https://barefootinvestor.com/?p=20909I often write about investments that sound too good to be true. There’s a reason for this: people continually ask me about investments that sound too good to be true. So this week, just for kicks, I thought I’d revisit a couple of stories … a sort of financial catastrophe...

There’s a reason for this: people continually ask me about investments that sound too good to be true.

So this week, just for kicks, I thought I’d revisit a couple of stories … a sort of financial catastrophe version of ‘Where Are They Now?’

Secret Property Options

In March I wrote about a ‘land banking’ scheme that once operated down the road from my family farm.

Busloads of mums and dads would do field trips to a farm on the outskirts of Melbourne that the developers had named ‘Secret Valley’. They’d wander around the paddocks sizing up what they were told was a canny deal.

The pitch was simple: Secret Valley is on the edge of the Melbourne sprawl. Eventually it will be swallowed up by suburbia. And if you’re smart enough to buy an option on a few plots of land from the promoters … you could become very, very rich.

How rich?

The marketing pitch to the people on the bus was that they could turn $120,000 into $1.2 million.

So what happened to the investors in the scheme?

Well, as I concluded at the time,“The investors in Secret Valley got roughly the same treatment that my ewes receive when I put a few daddy rams into the paddock.”

So what happened to the promoters of the scheme?

Well, this week they accepted 10-year bans from managing a corporation or operating a financial services business. They also agreed to pay ASIC’s legal costs of $50,000. However, they do not have to reimburse their investors — who have likely lost millions.

Depressing? Too bloody right.

So let’s get on the grog.

Nant Whisky Barrels

Tasmania’s Nant whisky is a damn fine drop — it’s been referred to as ‘liquid gold’ and it’s won gongs at the World Spirits Awards. But it was Nant’s ‘investment opportunity’, which I wrote about earlier this year, that really gave me a hangover.

Nant offered investors the opportunity to buy two barrels of their single-malt whisky for $25,000. Then they ‘guaranteed’ that in four years’ time they’d buy back the barrels for $36,007 (precisely). That worked out to be a 9.55 per cent per annum compounded return, which Nant plastered on their newspaper ads.
The entrepreneur behind Nant (and therefore behind the guarantee) was a property developer by the name of Keith Batt. (Well, he was a property developer until he went bankrupt owing $16 million.)

Two things happened after I published the story on Nant. First, Nant investors came out of the cellar claiming that they were struggling to get Nant to buy back their barrels as promised. Second, I kept tabs on Batt, figuring he’d eventually pull the pin.

That happened this week.

Nant’s assets are in the process of being sold to an outfit called Australian Whisky Holdings (AWH). This publicly listed private equity group has strategic holdings in other Tasmanian distilleries, and they’re apparently long-term investors in what is an exceptionally well-regarded world-class product — Tasmanian whisky.

I called up a director of AWH, Chris Malcolm, and asked him whether the company will honour Nant’s guarantee to buy back existing investors’ barrels and deliver them a 9.55 per cent compound return.

Malcolm: “We cannot commit to anything until we have undertaken a full audit.”

Barefoot: “Why not?”

Malcolm: “Mr Batt has indicated there may be a … hole.”

Barefoot: “And just how big is this hole, Mr Malcolm?”

Malcolm: “We do not know how big the hole is.”

Yet there was another Nant investment scheme that I wanted to ask Mr Malcolm about: cows.

Yes, cows.

See, after the barrels blew up, Nant came out with another opportunity for investors: the chance to buy a dozen purebred Black Angus breeding cows for $30,000.

Cowabunga!

And, just like with the whisky barrels, investors are lured by a guarantee. Nant will purchase the cows back in five years’ time for $47,335 (precisely) which delivers investors … the exact same 9.55% compound return. Whisky? Cows? At least they’re consistent.

Unfortunately, there have been media reports of investors having a hard time tracking down the precise location of their cows — and basically getting the same old beef jerky from Nant that the barrel owners are getting.

Mr Malcolm just laughed: “I can confirm that we are not … haw, haw, haw … buying the cow business.”

And then his phone cut out.

Smelling the Bulldust

On the face of it, you couldn’t think of a more diverse set of investments: whisky, farmland, and cows. (Come to think of it, I’ve pretty much just described my father’s dream retirement.)

Yet while they’re all very different investments, they have four things in common:

First, their advertising made bold claims about their potential financial returns.

Anyone reading these ads would believe they were investing in a financial product, right? Especially given they were putting their superannuation nest eggs into these schemes.

Wrong.

That’s the third thing all these investments have in common. The promoters denied they were offering a financial product. And there’s a very good reason for this. If they were, they’d have to issue a Product Disclosure Statement (PDS) and be regulated by ASIC. They’d also have to apply for an Australian Financial Services licence, for which, among other things, you need to pass a good character test.

And the final thing they all had in common? They all sounded too good to be true.

]]>https://barefootinvestor.com/would-you-invest-in-whisky/feed/0Meet the pizza boy with 14 propertieshttps://barefootinvestor.com/meet-the-pizza-boy-with-14-properties/
https://barefootinvestor.com/meet-the-pizza-boy-with-14-properties/#commentsMon, 17 Oct 2016 05:29:24 +0000https://barefootinvestor.com/?p=20889“Former Domino’s pizza delivery boy who earned $10 an hour owns 14 renovated properties and is now semi-retired at the age of 28 (and he says you can do it too)” read the headline this week. And all the renters groaned. Okay, so paint me purple and call me Dorothy...

]]>“Former Domino’s pizza delivery boy who earned $10 an hour owns 14 renovated properties and is now semi-retired at the age of 28 (and he says you can do it too)” read the headline this week.

And all the renters groaned.

Okay, so paint me purple and call me Dorothy but after more than a decade of doing this, my bulldust detector starts beeping whenever a young buck appears in the press crowing about owning 14 properties and retiring before he’s 30 … especially when his version of ‘retirement’ is running a property investment advisory business. Or maybe I’m just a dinosaur?

Either way, this type of ‘property porn’ always sucks in the eyeballs — and with good reason.

House prices are our Vietnam … man.

The war between landlords and renters has been a bitter and bloody two-decade-long battle. Over that time home-ownership rates of people aged 25 to 45 years have been in free-fall. The result being that young people are now increasingly middle aged before they get the keys to their first home.

40 is the new 30

According to research last year from ING, the average age of a first home owner in Australia is 38.

A generation ago you’d hope to own your own home outright by 40. Today you’re just getting started — so you are basically the housing equivalent of Janet Jackson (who announced this week she’s pregnant … at 50).

And of course the banks can, and do, discriminate against older first-time borrowers. It’s simple maths: if you’re 40 and you take out a 30-year loan, you’ll still be working at 70 … or the same age that Janet will be on her kid’s 21st birthday.

So is there a way to fast-track it into your first home?

You betcha.

Enter the bank of Mum and Dad.

The Quickest Way into Your First Home

Research released this week from Digital Finance Analytics (DFA) estimates that the number of first time home-buyers getting a leg-up from their parents has increased from just 3 per cent six years ago to more than half today.

In fact, DFA found that over two-thirds of older homeowners who refinanced homes worth more than $750,000 did so for reasons that included helping their kids.

And how much are they giving?

DFA states that at the start of 2010 parents were handing over $23,000 — today it’s more than $80,000.

There are three ways parents give that gift.

They can guarantor their kids’ loan by taking out a second mortgage on their family home (and you’d be totally bonkers to do this).

They can offer a limited guarantee — say for a 20 per cent deposit. This has a couple of advantages: the kids won’t have to pay expensive Lenders Mortgage Insurance (LMI), and the parents know exactly what they’re on the hook for. Yet in the words of Pauline, “I don’t like it.”

Or retired parents can take a lump sum out of their super and hand it over to their kids to use as a deposit. That’s the cleanest option, though I won’t be doing it for my children.

Why?

A couple of reasons:

First, if a bank that earns $10 billion a year in profits deems your kid a risk — why should you stump up?

Second, mixing money with family is never a good idea.

For the parents — many of who are trying to fund their own retirement — it sets a dangerous and expensive precedent for other children.

And for the kids, having your parents as your financial backstop could invite ‘boundary issues’…

“You know your mother and I didn’t lay down carpet until 1982? We sat on a cement slab for the first four years of our marriage. It gave your mother piles yet she’s still around, isn’t she? But you kids have to have it all now, doncha, with your fancy carpet and curtains.”

And …

“Why are you going on an overseas holiday / buying that car / talking to me like that … when we helped you out with your home? Is that all the thanks we get?”

Planning for the Worst, Hoping for the Best

I’ve been called everything under the sun for my steadfast advice to save up a 20 per cent deposit. People have accused me of being out of touch. Mortgage brokers disagree and say ‘just borrow 90% … or get an interest only loan’. Real estate agents say ‘house prices are going up faster than you can save’.

None of these arguments change my advice.

The fact is we live in a country with the highest household debt in the world — at a time when interest rates are the lowest point in history. All I’m concerned with is keeping first home buyers safe. And the best way to prepare yourself for taking on a massive 30-year commitment is to cut the apron strings and spend three or four years saving like mad.

And what about our property-mogul pizza delivery boy?

Well I called him up and had a chat with him this week — and I’ve got to admit that I was impressed.

When he started out, he lived with his parents and saved up a 20 per cent deposit with a low-paid job (and they don’t come much more low paid than delivering plastic pizzas), and he bought a little unit in the boonies. In other words, he scrapped, saved, and made things happen.

And then … it seems the Capricciosa went to his head. He just kept on leveraging up. Now, owning 14 properties on a low income at a time when interest rates are at all time lows (and have to come up some time) is not something I’d do. Then again, what’s the worst that could happen? He could go bust and … end up delivering pizzas for a living.

Still, hats off to the kid — he’s got more guts than a freshly delivered Domino’s MeatLovers.

]]>https://barefootinvestor.com/meet-the-pizza-boy-with-14-properties/feed/0If you were a drug dealer, how would you want to be paid?https://barefootinvestor.com/if-you-were-a-drug-dealer-how-would-you-want-to-be-paid/
https://barefootinvestor.com/if-you-were-a-drug-dealer-how-would-you-want-to-be-paid/#commentsMon, 10 Oct 2016 03:38:05 +0000https://barefootinvestor.com/?p=20874If you were a drug dealer, how do you think you’d want to be paid? PayPal? No. PayWave? Well, no. You’d want to be paid in cold, hard cash. And if you were ‘Breaking Bad’ big, you’d only want to deal in $100 notes — anything smaller would be too...

And if you were ‘Breaking Bad’ big, you’d only want to deal in $100 notes — anything smaller would be too heavy to lug around in suitcases.

(This is for illustrative purposes only: I’m a married father of two — the only drugs in my life are bottles of strawberry-flavoured Nurofen for teething tots.)

This explains the mystery behind why you rarely come into contact with $100 notes — even though there are three times as many in circulation as there are $5 notes, according to the Reserve Bank.

Drug dealers (and tax cheats) are hoarding most of them.

So given these facts, it’s not surprising there are calls for governments around the world to kill off their large-denomination bills (especially the US$100 bill) — as a way to make life harder for drug dealers, strippers, and terrorists.

Yet Australia is already ahead of the curve — a report released last month by Capgemini found that we are one of the world’s top five cashless societies. So it’s really only a matter of time before large bills go the way of Clive Palmer. But it’s not just criminals that stand to lose with the shift to digital dollars; banks are going to be hurt too.

How My Phone Became a Money Machine

A couple of months ago I signed up with a bank that allows me to pay for things under $100 by tapping with my iPhone. Thankfully, my wife does the weekly supermarket shop — god love her — so almost everything I buy is under a hundred bucks.

Here is what I learned:

Like you, my phone is always within reach. That means I don’t have to lug around my wallet, whip out a bank-branded card, or even think about going to an ATM. My banking universe is pretty much just another app on my phone.

Portable Bank Accounts

And that brings me to the biggest news story of the week: the Government Banking Inquiry. Sure, the entire thing was a farce, yet the one interesting thing that came out of it was the concept of making bank accounts ‘portable’.

What does that mean?

Well, just like you can switch from Telstra to Optus without losing your phone number, you would be able to switch banks without losing your account number. (This means you don’t have to go through the hassle of changing over all your direct debits … and risk getting whacked with a dishonour fee if you forget one of them.)

Under the griller, ANZ boss Shayne Elliott said that he was ‘open’ to the idea.

But really he’s not. He can’t be.

See, the banks are stitching us up. Everyone knows that we pay some of the highest bank fees in the world — the politicians, the punters, and especially the bankers. Lucky for them, there are still enough people who see them as an institution (these are the people who once had to get dressed up to get a loan).

That’s all over. The bankers are now facing full on digital disruption. So the idea that they’d be ‘open’ to giving their customers the freedom to switch with a swipe is … suicidal.

After all, the real gangsters today are the bankers.

Not only do they get away with rigging interest rates and hitting people with shady fees — they also get to spend their spoils (in the infamous case of ANZ) on cocaine and strippers.

The four families that make up the banking mafia pull in close to $30 billion in profits annually, and their respective Dons make over $10 million a year each … and none of it gets paid in $100 notes.

Who’d be a drug dealer?

Hater Of The Week

Last week I wrote about Donald Trump. This caused a lot of people to lose their minds, including Bill, who was so infuriated that he got on the old tappety-tap and fired me off this email:

Scott,

I’ve always believed that you were a fool, and this week you proved it. The truth is that the only people who don’t like Donald Trump are ignorant people in the media LIKE YOU. Trump at least has the guts to talk about the massive financial bubble that global bankers have created. You have no business writing about politics. Please stick to what you (claim) to know from now on.

Bill

And here is my response …

Hi Bill,

Thank you for your comments.

You are in good company. I received a larger than usual amount of hate mail this week.

However, like many American voters, you seem to be confused.

In my column last week, I actually started out by saying that I thought Trump’s comments on the credit bubble were intelligent (and that, by the way, is a ‘stop the press’ moment in itself).

Yet the real guts of my argument was about the the politics of fear — and how the media picks up and promotes stories that scare us. The old saying ‘if it bleeds it leads’ is especially true when it comes to predictions about the stock market.

As I wrote last week:

Wall Street had the worst start to the year on record when the Royal Bank of Scotland made global headlines with their recommendation: “Sell everything.”

Plenty of people got freaked out and did just that. Yet since they made that call, oil is up 40 per cent, emerging markets are up 29 per cent, the US S&P 500 is up 14 per cent, and even the ASX 200 is up 10 per cent.

Anyway, I just want to thank you, Bill. I forwarded your concerns on to my editor. He loved it and suggested that I consider writing a political column. I told him that I know as much about politics as Trump knows about foreign policy. Then again, why let that stop me?

]]>https://barefootinvestor.com/if-you-were-a-drug-dealer-how-would-you-want-to-be-paid/feed/0When will the housing market crash?https://barefootinvestor.com/when-will-the-housing-market-crash/
https://barefootinvestor.com/when-will-the-housing-market-crash/#commentsMon, 03 Oct 2016 04:00:09 +0000https://barefootinvestor.com/?p=20845Donald Trump reminds me of the bullies who teased me at school. Anyone who stands up to him gets a put-down: ‘Crooked Hillary’, ‘Little Marco’, ‘Low Energy Ted’. His aim is to get everyone laughing at them, just like in a classroom. And like all bullies, he only wins by...

Anyone who stands up to him gets a put-down: ‘Crooked Hillary’, ‘Little Marco’, ‘Low Energy Ted’. His aim is to get everyone laughing at them, just like in a classroom.

And like all bullies, he only wins by getting you to doubt yourself — rather than getting you to believe in him.

And that’s because it’s hard to believe in Trump.

He’s a liar. He cheated on his wife(s). Heck, he even wrote a book with the ‘Rich Dad, Poor Dad’ guy (Robert Kiyosaki) entitled Why We Want You to Be Rich — ironic, given the authors have notched up five corporate bankruptcies between them.

And yet, in this week’s presidential debate, the ‘Big D’ actually said something intelligent:

“We’re in a bubble right now, and the only thing that looks good is the stock market. But if you raise interest rates even a little bit, that’s going to come crashing down. We are in a big, fat, ugly bubble. And we better be awfully careful.”

Okay, so only a shrink can fully explain why Trump feels the need to label everything ‘big, fat, and ugly’ … yet he’s right on one thing: we are in uncharted financial territory.

Right now, global interest rates are the lowest they’ve been in recorded history. In fact, in many countries interest rates are negative. Since the dawn of civilisation savers have earned interest, borrowers have paid it. That’s now been flipped.

Park the fancy economic talk and think about how ultra-low interest rates are affecting you:

Interest rates are the main reason your house value has increased so much. People aren’t earning more — they’re just borrowing more. That’s how Australia wound up with some of the highest levels of household debt (compared to income) in the Western world.

And ultra-low interest rates are forcing retirees out of (safer) fixed interest and cash accounts, which pay two parts of bugger all, into the (riskier) stock market to earn dividends.

When interest rates go up, as they surely will, the bubble will burst — and house prices will come down.

Here’s you: ‘Dude! When will that happen?’

Here’s me: ‘I have absolutely no idea, and neither does anyone else. Not even the comb-over king.’

Here’s you: ‘So what should I do in the meantime?’

Here’s me: ‘Read on.’

When Will the Housing Market Crash?

I’ve been the Barefoot Investor for 15 years. And for all that time I’ve been warning about our unsustainable debt levels. However, in that time I also bought my family home.

At the time I bought, I was convinced the market was overvalued. But I was sick of renting, and I fell in love. And history had taught me that prices can remain overvalued for many, many years.

Besides, no one can predict the future. As the excellent book Future Babble, by Daniel Gardner, proved, the more famous the forecaster, the more likely they’ll be as accurate as a dart-throwing monkey.

The truth is that there are no answers.

That’s why I saved up a 20 per cent deposit, and factored in a repayment interest rate of 10 per cent. And then I set about working my arse off to get the banker off my back, once and for all.

And lo and behold, over the years, interest rates halved, and the joint doubled in price.

Things could just have easily have gone the other way, of course. After all, I don’t have control over house prices. Or the direction of interest rates. And that’s why I didn’t bet on any of this happening.

I just bet on myself.

When Will the Share Market Crash?

Back in January, things looked grim.

Wall Street had the worst start to the year on record.

The esteemed Royal Bank of Scotland’s dedicated analysts … cracked.

They told their clients to prepare for a “cataclysmic year”.

It made global headlines, and freaked everyone out with their bone-chilling recommendation:

“Sell everything”.

Hold your haggis!

Truth is, scary headlines are good business, especially when they coincide with a market going down (remember that old adage, ‘if it bleeds it leads’). And besides, in an era of 24-7 tweets, and Brad and Angelina, no one ever has time to go back and check what they said.

So let’s do that.

The Royal Bank of Scotland predicted that markets could drop by a fifth, and that oil could drop to $16 a barrel.

How’s that call looking today?

Well, oil is up 40 per cent, emerging markets are up 29 per cent, the US S&P 500 is up 14 per cent, US high-yield bonds are up 13 per cent, and even the ASX 200 is up 10 per cent.

Look, I’m not talking a potshot at a bloke in a kilt.

All I’m saying is that you could be right about a crash in the market, but wrong about the timing. And the upshot is you could be left blowing your bagpipes while the market doubles or triples.

So what can you do?

Well, when all else fails, use common sense.

I’ve long advised people heading to retirement to go from having three months of living expenses to having three to five years of living expenses by the time they retire. That gives you time to ride out the inevitable downturns. The rest of your money should be invested in good-quality shares that will keep your nest egg growing faster than inflation.

Finally, recognise when you’re getting played. One of the oldest tricks in the book is to prey on people’s fears. It gets people to do irrational things — like voting for a big, fat, ugly orangutan.

]]>https://barefootinvestor.com/when-will-the-housing-market-crash/feed/0Barefoot, should I call off my wedding?https://barefootinvestor.com/barefoot-should-i-call-off-my-wedding/
https://barefootinvestor.com/barefoot-should-i-call-off-my-wedding/#commentsThu, 29 Sep 2016 01:22:24 +0000https://barefootinvestor.com/?p=20838My column last week — why engagement rings are a scam (and why you’ll buy one anyway) — went off like a drunk uncle on the dance floor. I was flooded with emails. Perhaps it’s because we’re in the peak season for weddings. Or maybe it’s because it coincided with...

]]>My column last week — why engagement rings are a scam (and why you’ll buy one anyway) — went off like a drunk uncle on the dance floor. I was flooded with emails.

Perhaps it’s because we’re in the peak season for weddings.

Or maybe it’s because it coincided with the finale of The Bachelor, where Richie chose his winning woman. Richie gave us a candid insight into the depths of his love and devotion when he confessed to the media:

“I had the biggest blue balls in Australia.”

What a man! What a catch!

Now my older readers may not know who Richie is or, for that matter, what “blue balls” are.

Try googling it.

On second thought, don’t do that. Seriously. You really don’t want to do that.

Instead, let’s shift our attention from contrived reality television to three real wedding emails I received this week — enough to make the Bachelor look blue.

Should I Call Off My Wedding?

Dear Scott,

I am 28 and getting married in two weeks. I am having doubts about going through with it for many reasons, most of them financial, which is why I am writing to you.

My fiancé is a real estate agent and owns his own agency, which is set up in a trust. There have been instances where employees haven’t been paid. He’s a big talker, which doesn’t go down well with my father, or my brothers, all of whom are tradies.

We bought a home for $1.2 million two years ago, but he borrowed the money, not me. So is the house debt mine as well? He also took out a credit card in my name, without my approval. And there are lease payments on his Mercedes-Benz (I drive a Kia — but again, do I have to pay?). Please help me! Please don’t publish this!

Lisa*

(*name changed)

Yes, this is a real question … and yes, she didn’t want it published.

So I called her.

Barefoot: “Hi Lisa. Now I’m no Dr Phil, but when a bride-to-be is two weeks out from her wedding and she’s more concerned with her financial exposure than her flower arrangements … well, I think that’s telling.”

Lisa: “Do you think so?”

Barefoot: “Yes, I do think so.”

Lisa: “It’s just that we’ve already paid for everything … and we won’t get our money back … and everyone’s RSVP’d … and it’s in two weeks!”

Barefoot: “You’re thinking about the next fortnight — I’m thinking about the next forty years.”

Lisa: “I feel sick.”

Barefoot: “This could be the luckiest day of your life.”

Postscript:

On Wednesday morning this week I received the following text message from Lisa:

“Thank you for taking the time to call. I really needed to hear your advice. Wedding has been called off. Surprisingly, he took it well! Everyone has been supportive of my decision. Feel free to publish. It could give other people hope if they’re in the same situation!”

One wedding down, let’s go to the next email.

Who Keeps the $11,000 Engagement Ring?

Barefoot,

I just read your article on engagement rings being a rip-off. It was very timely because I certainly got ripped off. I proposed to my girlfriend of three years last November with a 1.2 carat ring which cost $11k. She said yes. Her phone went off one night when she was asleep and, long story short, she’d been banging another bloke! I called off the engagement, but get this, she won’t give me back the ring. Won’t even talk to me. I want the ring back. What can I do?

Ben*

Hi Ben,

Trust me, you don’t want the ring back.

What would you do with it? Give it to your next flame?

As I said last week, the truth is that buying an engagement ring is like buying a new car: the moment you walk out of the showroom, the price drops by 30–50%.

Now, given you were in a de facto relationship for at least two years, the ring will form part of the property division that you may want to pursue legally. The only problem with ‘lawyering up’ is that you could be throwing good money after bad (and money spent on lawyers in a relationship breakdown is almost always classified as ‘bad money’).

Instead, look on the bright side: she cost you only $11,000 (she’ll cost some other dude a lot more than that). You got off lightly. Good on you.

(P.S. Tell her it was a cubic zirconia.)

Marriage, Mortgage, Midgets

Hi Scott,

Love reading your column each week! My fiancee is pregnant and we have a wedding coming up, all booked in. We then have less than five months to the birth of our child, plus a large mortgage that we cannot afford on only one income. Is my bank required to freeze my repayments while my fiancee is on maternity leave? I will be asking them either way, but please set my mind at ease. It is almost worth having her fired otherwise!

Terry*

Terry, Terry, Terry.

You really haven’t thought this through, have you, cobber!

What you’re referring to is applying for a ‘hardship variation’ on your home loan. You have the right to apply for a variation, and the bank is legally required to consider your application — but they don’t have to agree to it.

Even if they do agree to temporarily freeze or reduce your repayments, they’ll get their pound of flesh by extending the loan and adding the interest on the end. It’ll cost you more in the long run. It’s like Usain Bolt sawing off one of his legs so he can compete at the Paralympics. Sure, it’s an option, but what’s the long-term cost?

Relationships Australia says that 80 per cent of relationships that break down do so because of money problems — and you have more money problems than most. So look at the next five months as your Marriage Olympics: the two of you need to work out a realistic five-year plan. It’ll involve making tough decisions — the first of which is to cancel your honeymoon. Sing it with me, Terry: “The honeymoon is over, baby, it’s never going to be that way … again.”

There’s No Need for Blue Balls (or Bank Accounts)

Don’t hold out like old Richie. If you’ve got a prolonged state of … monetary tension … let it out by heading over to AskBarefoot and hit me with your best shot.

]]>https://barefootinvestor.com/barefoot-should-i-call-off-my-wedding/feed/0How much should you spend on a wedding ring?https://barefootinvestor.com/how-much-should-you-spend-on-a-wedding-ring/
https://barefootinvestor.com/how-much-should-you-spend-on-a-wedding-ring/#commentsMon, 19 Sep 2016 22:27:41 +0000https://barefootinvestor.com/?p=20798This column is dedicated to all the brothers out there who are buying an engagement ring this weekend. And there’s a lot of you. According to the ABS, 120,000 people get hitched each year. That’s 60,000 blokes, and 60,000 rocks. It’s stressful (you know her taste … right?) and bloody...

]]>This column is dedicated to all the brothers out there who are buying an engagement ring this weekend.

And there’s a lot of you.

According to the ABS, 120,000 people get hitched each year.

That’s 60,000 blokes, and 60,000 rocks.

It’s stressful (you know her taste … right?) and bloody expensive.

It’s a status symbol on a finger.

It’s a measure of your manhood.

The size of the rock is the size of your success.

But let me share a little secret with you: the engagement ring is one of the biggest marketing conjobs in history — right up there with the Marlboro Man.

In the 1930s, less than 10 per cent of couples sealed the deal with a diamond — today it’s around 80 per cent.

What gives?

Well, it began in 1938 when a mining company called De Beers set out to make diamonds the symbol of love.

(Actually, the story really began 70 years earlier when De Beers found massive deposits of diamonds in South Africa and shrewdly stitched up a cartel that controlled 90 per cent of the world’s supply.)

The De Beers marketing campaign infiltrated Hollywood, paying celebrities to parade their diamond engagement rings in the magazines and newspapers of the day. De Beers also paid for diamonds to be ‘placed’ in Hollywood films, and it’s rumoured they were behind Marilyn Monroe’s famous song ‘Diamonds Are a Girl’s Best Friend’.

It was stunningly successful.

In 1938, De Beers sold $US23 million worth of wholesale diamonds in the US — today it’s $US2.4 billion.

And at the retail level, diamond jewellery sales were $US81 billion worldwide in 2014.

Diamonds are not only a girl’s best friend — they’ve also bought a lot of cocaine for marketing executives:

‘A Diamond Is Forever’ has appeared in every De Beers engagement advertisement since 1948.

It was voted ‘slogan of the century’ by Advertising Age, and with good reason. The brilliance of this line is that if you’re convinced that a diamond should be kept forever — and never resold — then the De Beers cartel can effectively control the price. And that’s exactly what they’ve done over the years.

The truth is that buying a diamond is like buying a brand-new car — in both cases, the moment you walk out of the showroom, 30 to 50 per cent of the value is lost.

Why?

Because diamonds are not really precious; they’re more common than dogs’ balls. Seriously, there are said to be 39 billion stones in existence — more than five for every person on earth, according to diamond analyst Martin Rapaport.
And what about the saying that a man should spend ‘three months of his wages on an engagement ring’?

De Beers marketing genius at work again.

It started out as one month, and it worked so well they bumped it up to two, then three.

On an average $65,000 wage, post tax, that’s a $12,750 outlay.

Remember, though, that diamonds are not an investment. They don’t increase in value. They’re just a multi-billion-dollar marketing machine created by a bunch of miners — to manipulate men.

Now, by all means, forward this article to your fiancée and say to her:

‘The Barefoot Investor makes some really excellent points. So, my love (you bending down on one knee), here’s a $35 cubic zirconia ring I bought off Gumtree. I’m going to invest the money I saved in a diversified portfolio of quality shares … Will you marry me?’

No, you’re not going to do that.

You’re going to buy a rock. Just like I did. Just like your father did.

Welcome to the club, son.

How Much Should You Spend on an Engagement Ring?

As any bridezilla will tell you, selecting a diamond comes down to the four C’s: Cut, Colour, Clarity and Carat weight.

But I’m not a jeweller, I’m a finance guy, so let me add another ‘C’ to the mix: Cost.

You can get a beautiful rock for a couple of grand, as long as you shop smart.

First, go with a specialist diamond dealer for the rock itself, get some diamond prices based on having the ring set somewhere else (this is what I did).

Second, look at the prices from an online diamond jeweller. Most of the big players operate from the US and ship to Australia (and often their prices are often up to 30 per cent cheaper than you’ll find in a shopping mall here).

Finally, look at buying a ‘reject ring’ — one that was bought by some poor bloke who then got turned down by his bride-not-to-be, and is now sitting on gumtree.

Harsh? Sure. But someone’s ‘no!’ is your ‘hell yeah!’ Just make sure you get it inspected (it should come with a valuation certificate from a valuer registered with the National Council of Jewellery Valuers, as well as a grading certificate).

Whatever you end up doing, don’t blow your wad on a ring.

Trust me on this. If she says ‘yes’, you’re about to enter the most expensive decade of your life — the Triple Ms (Marriage, Mortgage, Midgets). Brace yourself for the wedding venue bill, the Bugaboo stroller, and the $100,000+ house deposit.